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Square’s London Rival Targets IPO With Wallet for Europe

November 13, 2012

Square’s London Rival Eyes IPO as Europe Opens to Mobile Wallet

Powa Technologies Founder, Dan Wagner. Photographer: Sarah Lee/Eyevine via Redux

Powa Technologies, Europe’s answer to Jack Dorsey’s Square Inc., is considering an initial public offering after its U.S. competitor raised $200 million from investors including Starbucks Corp. (SBUX:US)

Founder Dan Wagner, who started working on a gadget that lets users receive payments by connecting a credit card to a mobile device about 20 months ago, says a share sale may take place next year. Wagner oversaw the 1994 IPO of his Maid Plc, later renamed and acquired, and has managed payments on websites of Tesco Plc and France Telecom SA through his Venda venture.

With London-based Powa, the 49-year-old businessman is betting he can conquer markets such as Europe before California-based Square replicates its U.S. success elsewhere. Companies from Google Inc. (GOOG:US) to PayPal Inc. have also moved to grab a share of mobile transactions reaching $171.5 billion a year worldwide, according to Gartner Inc.

Still a dwarf in the business, Powa signed its first “multi-million dollar” deal last month with First National Bank in South Africa and is negotiating with some of the world’s 20 largest banks, said Wagner, who owns 100 percent of the company. Sales at the already profitable company will grow to more than $20 million next year, from $300,000 last year, he said in an interview.

“If we do an IPO, we can improve that growth exponentially,” Wagner said. “We’re meeting with investment banks to evaluate it and, if there’s sufficient appetite, we’ll consider doing an IPO in the U.S. or the U.K. in the first or second quarter of 2013.”

Mobile Swiping

The small devices made by Square and Powa are plugged into a mobile phone or tablet computer, and the person making the payment then swipes or inserts a credit card into the device. That allows individuals or small businesses with no standalone card-processing machines to accept credit-card payments. Powa and Square make money by charging a transaction fee.

Square raised $200 million a few months ago from investors including Starbucks, which poured in $25 million and said it would let customers in 7,000 of its U.S. stores pay for their lattes using Square’s technology. The company processes $8 billion in payments on a yearly basis. Powa declined to disclose the amount it processes.

Tough Competition

Twitter Inc. (TWTR:US) co-founder Dorsey released Square’s first reader in 2010 for use with credit cards that have magnetic bands and grew the business by signing on small merchants. The company, which is moving its headquarters to San Francisco’s Central Market neighborhood, said it will use part of its latest funding to grow beyond the U.S. It started in Canada last month.

“The bigger the scale, the better the fee is in this business,” said Sandy Shen, an analyst at Gartner in Shanghai. “Square or Powa need to get enough users on board to reach the scale -- that’s why Square chose to partner with Starbucks, to help drive up the volume.”

Square and Powa face competition as banks, credit-card companies and wireless carriers move in to manage payments. Mobile-phone makers and smart-chip companies like Gemalto NV (GTO) have developed contactless-payment technologies that let people hover devices over a cash register to pay.

Among carriers, Vodacom Group Ltd. (VOD), owned by Vodafone Group Plc, has gained more than 14 million customers in less than six years in Africa with its M-Pesa mobile payment. France’s largest phone company France Telecom captured 5 million clients in four years in Africa and the Middle East with a service that lets people transfer money, pay for purchases and bills over the phone network.

Payment Code

To fend off Square in Europe, Powa has tailored a product with a keypad for that market. In Europe, many consumers have credit cards with a chip rather than a magnetic band, and they are also required to type in a code when they make a payment.

Wagner said Powa has received hundreds of inquiries from potential clients, especially banks, because they can rebrand the product, start distributing it within a few months, and because customers usually get excited about paying through a plastic square.

“People recognize that it’s Square in the U.S. and us outside,” Wagner said. “We’re not just a copycat player, we had the infrastructure ready through our e-commerce history and we can provide the highest level of security.”

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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